Tax

A piece of good news on which to end the year and start the next – the UK Government has published regulations dramatically reducing the scope of DAC6 (the EU Mandatory Disclosure Regime) in the UK as part of the Brexit deal package/post transition arrangements.

In short, the effect seems to be that DAC6 will, from today, mostly cease to apply in the UK. This is a surprising development. 

There will now be only one category of hallmarks (category D – broadly, the avoidance of certain reporting obligations including the EU Common Reporting Standard and presence of unidentifiable beneficial owners: see further the summary below) that will need to be considered in assessing whether a DAC6 report needs to be made to HMRC.  If the Category D hallmarks are not present, then the result of the new UK regulations is that DAC6 will not be relevant in the UK (although an assessment in any EU countries involved in a transaction may still need to be undertaken, with full hallmark analysis, to determine whether a DAC6 filing is needed in those countries).

On the face of the Regulations, there appears to be no reporting requirement even for arrangements in the period prior to 31 December 2020, although we expect HMRC to confirm the position on this.

This change is possible under the Trade and Co-operation Agreement from Christmas Eve, which commits the UK to implementing OECD taxation standards, and not EU-level measures such as DAC6 (which were required for the EU transitional period under the Withdrawal Agreement).  This is an interesting initial insight into how the UK Government may diverge from the EU on tax matters post-Brexit. 

Summary of Category D Hallmarks

D.1. May the arrangement have the effect of undermining reporting obligations under laws or agreements on the automatic exchange of financial account information (e.g. the EU Common Reporting System), or may it take advantage of the absence of such laws or agreements?

D.2. Does the arrangement involve a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements or structures that do not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises and that are incorporated, managed, resident, controlled or established in a jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the relevant assets, and are the beneficial owners made unidentifiable?